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Tag Archives: Real Estate Settlement Procedures Act

TILA Does Not Require a Loan Servicer to Identify the Loan’s Owner

Posted in Mortgage Foreclosures; Real Estate Settlement Procedures Act; Truth in Lending Act

The Ninth Circuit recently sided with a loan servicer who was sued by a borrower for failing to provide him with the loan owner’s information. In Gale v. First Franklin Loan Services et al., 686 F.3d 1055 (9th Cir. 2012), amended, 2012 U.S. App. LEXIS 18545 (9th Cir. Aug. 31, 2012), the Ninth Circuit held that a loan servicer is not required under the Truth in Lending Act (TILA) to disclose the owner of the loan obligation to the borrower even at the borrower’s request. The only exception is when the loan servicer is also the assignee-owner of the loan. 

The Plaintiff borrower in the case was Richard Gale. In November 2006, he refinanced his home mortgage loan with Franklin Loan Services (“First Franklin”). At the time, First Franklin was both the creditor and servicer of the loan. In June 2008, Gale lost his job, and consequently, he fell behind his mortgage payments. Seeking to renegotiate his loan, Gale sent a letter to First Franklin explaining his situation and offering solutions. In his letter, Gale also asked First Franklin for the identity of the “true owner” of his loan. First Franklin did not respond to Gale’s letter. Ultimately, Gale’s home was foreclosed when he continued to fall behind his mortgage payments. Gale subsequently sued First Franklin and others for violation of TILA, among others. The trial court dismissed the TILA claim, and the Ninth Circuit affirmed.

As it concerns the alleged violation of TILA, the issue before the Ninth Circuit was the last sentence of TILA, 15 U.S.C. section 1641(f)(2), which states, “Upon written request by the obligor, the servicer shall provide the obligor, to the best knowledge of the servicer, with the name address, and telephone number of the owner of the obligation or the master servicer of the obligation.” The Court acknowledged that at first read, this sentence seems to apply to all creditors or servicers, but the Court ultimately rejected such a sweeping interpretation of the law. Instead, the Court noted that section 1641 does not apply to servicers in general, but only to “purchasers or assignees of mortgages.” Furthermore, the Court also held the section did not apply to an assignee merely for administrative convenience, as opposed to an assignee-owner of the loan obligation. As First Franklin was the original lender and merely the servicer, the Court held that the section did not apply to it. In reaching its conclusion, the Court examined section 1641 “as a whole before focusing on paragraph (f)(2)” and found that, contrary to what section 1641(f)(2)’s text may suggest, section 1641 is limited in scope to a servicer who is “an assignee of such obligation…” The Court also noted that the section further excluded an assignee “solely for the administrative convenience of the servicer in servicing the obligation.” The Court concluded that subsection (f) must be read “in keeping with the theme of § 1641 as a whole…” 

The Gale decision does not necessarily foreclose any relief to borrowers who find themselves in the same situation as Gale. As the Ninth Circuit pointed out, the 2010 amendment to the Real Estate Settlement Procedures Act (RESPA) required that all servicers must respond to a borrower’s request for information, although such requirement only applies prospectively from 2010. There may also be state law requirements that are broader than those required under TILA. For example, beginning January 1, 2013, California’s so-called Homeowners’ Bill of Rights comes into effect, which defines a “mortgage servicer” much more broadly than TILA’s section 1641. Thus, it is critical that owners of mortgage loans, lenders, and loan servicers are aware of the various other federal and state laws that may or may not require the same sets of obligations.

The Ninth Circuit Analyzes Procedure for Review of Arbitration Awards

Posted in Real Estate Settlement Procedures Act

In Johnson v. Wells Fargo Home Mortgage, Inc., the Ninth Circuit addressed issues regarding a district court’s review of an arbitration award, as well as the substantive merits of the plaintiff’s Real Estate Settlement Procedures Act (“RESPA”) claims. 2011 WL 505016 (9th Cir. Feb. 15, 2011). The plaintiff, Wes Johnson, brought suit against Wells Fargo Home Mortgage, Inc. (“Wells Fargo”) alleging, inter alia, claims for violation of RESPA for Wells Fargo’s improper reporting to credit reporting agencies of Johnson’s delinquencies on two mortgage loans, which he secured as part of his business of purchasing undervalued properties and then refurbishing, renting, and selling them. The parties stipulated to binding arbitration. The arbitrator found in favor of Johnson awarding him damages. Wells Fargo then moved the district court to vacate the award. The district court directed that the appeal of the award should be heard directly by the appellate court, and without reviewing the award, confirmed it.

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HUD Clarifies How Real Estate Broker Commission Fees Should Be Disclosed Under RESPA

Posted in Real Estate Settlement Procedures Act

On January 22, 2010, the Department of Housing and Urban Development’s (“HUD”) general counsel, Helen Kanovsky, provided “clarification of how real estate broker and real estate agent commission fees are to be disclosed.” The clarification came in the form of a letter responding to an inquiry by RESPA attorney Jay Varon of Foley & Lardner, LLP.

According to the letter, RESPA permits real estate brokers to charge a flat fee and/or a percentage fee so long as (a) the fee is disclosed in the listing or buyer’s broker agreement, (b) the fee charged on the HUD-1 is equal to what was disclosed, and (c) the fee disclosed on line 700 of the HUD-1 is disclosed as part of the commission. Kanovsky goes on to stay:

RESPA also does not prescribe how these commission fees would be distributed between the real estate brokers and real estate agents. Therefore, the division of the compensation for their services in listing and selling the home is appropriately a matter for negotiation and agreement between the real estate brokers and real estate agents.

Click here for a copy of Kanovsky’s letter. Click here for RESPRO’s treatment of the issue.

HUD’s New Settlement Cost Booklet

Posted in Real Estate Settlement Procedures Act

The Department of Housing and Urban Development has released a new Settlement Cost Booklet, much of which is dedicated to the new Good Faith Estimate and HUD-1 Settlement Statement (read more about the changes here). Pursuant to the new rules promulgated under RESPA, effective January 1, 2010, lenders and mortgage brokers must provide the Settlement Cost Booklet within three days of when a borrowers applies for a loan. Click here for the electronic version of HUD’s Settlement Cost Booklet.

HUD Offers Online Outreach Program To Assist With Implementation of New RESPA Rules

Posted in Real Estate Settlement Procedures Act

Effective January 1, 2010, the amended regulatory requirements of the Real Estate Settlement Procedures Act (“RESPA”) will require lenders and mortgage brokers to provide consumers with a standard Good Faith Estimate (“GFE”) designed to disclose key loan terms and closing costs. Read more on the new RESPA rules here. The Department of Housing and Urban Development (“HUD”) has announced a series of “plain english” interactive live online presentations to assist professionals with the implementation of the new rules. HUD’s press release, which includes the remaining program schedule, can be found here.

HUD Announces 120-Day Enforcement Delay On New RESPA Rule, Subject To Good Faith Efforts To Comply

Posted in Real Estate Settlement Procedures Act

HUD announced today that it will follow a resolution of its Mortgage Review Board to show restraint during the first 120 days of 2010 with respect to enforcement of the new RESPA rule scheduled to go into effect on January 1, 2010 — so long as good faith efforts are being made to comply with the new rule. In addition, in separate letters, HUD requested regulators of federal depository institutions and the FTC to show similar restraint in any enforcement activities relating to the new rule and made the same request of relevant state agencies.

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Third Circuit Holds Overcharges Not Required in RESPA Actions

Posted in Real Estate Settlement Procedures Act

The Third Circuit just issued an opinion, Alston v. Countrywide Financial Corp., holding that plaintiffs are not required to have suffered an overcharge to bring a cause of action under the Real Estate Settlement Procedures Act (“RESPA”).

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